The sunk cost effect is the tendency to continue an action once work, money, or time has already been dedicated to it. These should not influence decisions, since they should be made based on expected future consequences. However, humans and animals have been found to resist halting an action, even if it seems pointless. This is motivated by what has already been invested. These sunk costs can have serious psychological consequences.
In the article, “Sensitivity to “sunk costs” in mice, rats, and humans” Dr. Sweis evaluated how sunk costs affect decision making in humans, mice, and rats. Rats and mice were placed in a maze with 4 different areas or “restaurants” with 4 different flavored rewards, each with different wait times. A fixed tone pitch was played in the offer zone that indicated how much time a subject had to wait for the reward. If they accepted the offer, the subjects would move on to a wait zone. The subjects also had the option of quitting after they entered the wait zone. Humans were offered different entertaining videos with various downloading times. Downloads began during the wait phase and they were also given the option to quit. Overall, increasing prior investment amounts resulted in a stronger sunk cost effect. The more time spent in the waiting zone, the more likely they were to stay. Additionally, mice developed better decision-making skills as they spent more time in the offer zone rather than the wait zone.
In the article “The Sunk Cost Fallacy is Ruining your Decisions. Here’s How” Christopher Olivola, an assistant professor of marketing, describes how sunk costs can have a negative effect on people’s emotions and how it can become a psychological trap. Olivola points out that the sunk cost effect can often push people to stay in unhappy relationships simply because of the time they have already dedicated to it. It also affects how we spend our money or invest our time into something. Regarding money, people continue to irrationally spend it because they want to convince themselves that they can manage to recapture the loss. Additionally, Olivola found that people still feel guilty when misusing money even when it’s not their own. Various experiments were conducted to measure the extent to which the sunk cost effect would impact people’s decisions in hypothetical situations. In one experiment, participants were asked to imagine feeling full after eating a few bites of cake. Some were told the cake was on sale and some were told the cake was expensive. In each scenario, some were asked to imagine that they had bought the cake themselves or that someone else had purchased it. Despite feeling full and regardless of who bought the cake, people were more likely to keep eating the expensive cake. Ultimately, continuing to irrationally dedicate time, energy, or money to something that is unattainable will only make a person more unhappy and distressed.
Both articles give insight into the decision making process. Even though the time or money that has been lost can’t be recuperated, it still continues to affect our actions in the future. The findings of these experiments can be useful for developing treatments for psychological disorders that impact decision making. We can use this information to further decipher the causes of mental illnesses like depression. On the other hand, Dr. Sweis’ experiment showed how significant the sunk cost effect is in animals as well which shows how innate this cognitive process is. The desire to avoid being wasteful isn’t present only in humans. However, both articles show that sunk costs can also lead to better decision making skills. The mice learned to evaluate offers more carefully to avoid regret. Likewise, humans learn to consider how much commitment a specific action will require before proceeding with it.
References:
Sweis BM, Abram SV, Schmidt BJ, Seeland KD, MacDonald AW 3rd, Thomas MJ, Redish AD. Sensitivity to "sunk costs" in mice, rats, and humans. Science. 2018 Jul 13;361(6398):178-181. doi: 10.1126/science.aar8644.
Ducharme, Jamie. “The Sunk Cost Fallacy Is Ruining Your Decisions. Here's How.” Time, Time, 26 July 2018, time.com/5347133/sunk-cost-fallacy-decisions/.
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